A miffed Ulrich Schumacher, president of Infineon Technologies AG, has bemoaned the incestuous nature of Japanese chip alliances. During a visit to that country last month the German executive said chipmakers in Japan should be more open to partnering with foreigners than simply among themselves.
Sure enough, only days after the Infineon chieftain voiced his concerns, Mitsubishi Electric Corp. agreed to fold its DRAM operation into Elpida Memory Inc., itself the joint venture of Hitachi Ltd. and NEC Corp. At about the same time Mitsubishi and Hitachi agreed to combine their non-DRAM chip businesses into a new joint venture, called Renesas.
Yes, in the consolidation of the Japanese chip industry, many domestic firms have tended to ally with each other. This would have been unthinkable only a few years ago when the fiercely competitive Japan IC producers battled among each other as much as with foreigners for market share. But staggering chip operation losses and paucity of capital investment over the last two years has radically changed all that.
Even so, Toshiba Corp. last year was negotiating a foreign DRAM alliance with Infineon. In fact the German firm thought it had a joint venture all but sealed to take over the Japanese firm's DRAM business. But Schmacher's comments that Infineon would essentially get the Toshiba DRAM operations "for free" may have upset the deal, which quickly fell apart. Instead, Toshiba sold its Manassas, Va. DRAM fab to Micron Technology, converted its Japanese DRAM fab to flash memory and simply dropped out of the commodity DRAM market.
The Japanese may now feel that Infineon's admonition to form more foreign alliances is a little disingenuous.
For its part Infineon said that some Japanese-only alliances haven't been that successful. Bringing in a fresh foreign perspective might make a better marriage than simply one Japanese company allying with another, according to the German firm.
Over the years Japan Inc. has also formed a number of major partnerships with foreign chipmakers. Kobe Steel allied with Texas Instruments Inc. to build Kobe TI, which became part of Micron when it bought out all of TI's global DRAM operations. Fujitsu Ltd. and Advanced Micro Devices have had a long standing successful joint venture to build NOR flash memory.
Fujitsu and AMD now are reportedly considering plans to set up a new company to include global marketing of flash chips in addition to the joint production in Japan. AMD might also fold its Austin fabs that make flash into the new joint company as well.
Toshiba has been a minority equity investor in foreign foundries, including Tower Semiconductor of Israel and Semiconductor Manufacturing International Corp. (SMIC) of China. But these seem to be foundry relationships in which Toshiba was paid well for transferred technology, as well as gaining product supply.
Most recently Mitsubishi and Samsung Electronics Co. have entered a joint development of image sensor chips.
Even the U.S. State Department earlier this year released a report citing Japan for being far more open to foreign investment and partnerships. A far cry from the days when the U.S. Trade Representative put Japan at the top of its list of countries with major trade barriers against U.S. high tech companies wanting to crack that market.
The bottom line is that Japan is still a tough market, but foreigners can often strike a deal there if it is right. But in the rampant consolidation of the Japanese chip industry, there may not be that many opportunities left.